«“Manufacturing cities: Industrial policy and urban planning in India”1 Neha Sami* Shriya Anand ©Neha Sami & Shriya Anand (*) Neha Sami & Shriya ...»
However, it must also be noted that while these government departments are vested with the general responsibilities of executing the DMIC within their states, they in turn have formed (or are in the process of forming) specialised agencies, which are singularly focused on tasks related to the DMIC. Therefore, departments like the GIDB function as supervising bodies for the DMIC in the state while the DMIC-specific agencies carry out more specific tasks. In Gujarat, the specialised agency is the Gujarat Industrial Corridor Corporation or GICC. It has several designated functions, all pertaining to the development of the DMIC in Gujarat, including the establishment of industrial corridors, investment regions, industrial areas, economic regions, industrial nodes, SEZs and townships as well as integrated infrastructure for the same (Gujarat Industrial Corridor Corporation Limited, 2014).
The Rajasthan government is considering the establishment of a similar body with a singular focus on the implementation of DMIC-related projects. However, unlike in Gujarat, this new agency is not expected to function under the aegis of an entity such as the BIP but report directly to the Rajasthan Urban Development Minister and derive its mandate from a special government act. At the time of writing, it had
not yet been confirmed if this new agency had been incorporated or if the state government had passed such an act.
Thus, even though there are similarities in legal frameworks between the states and between the centre and the state, there are a few significant differences to note.
Firstly, if Rajasthan does incorporate a new agency directly under the urban development minister, it will denote an expansion of focus from the original vision of the DMIC as a site and facilitator of industry to becoming a site and facilitator of urbanisation as well, with the urban development ministry playing a significant role in its development. Furthermore, (if this is implemented) direct accountability to a state cabinet minister also signals a prioritisation of the DMIC in Rajasthan.
In contrast, while the constitution of the GICC in Gujarat also signals a prioritisation of the DMIC, the state has chosen to place it under the GIDB, signaling intent to continue working on the DMIC through its industrial policies and institutions. This doesn’t necessarily imply a lack of focus on urbanisation but it seems to signal that urbanisation processes, if any, will be managed through its industrial institutions and frameworks for the time being. This is further borne out in the Gujarat Special Investment Region (SIR) Act of 2009, which, while allowing for the establishment of Regional Development Authorities or RDAs for developing specific nodes such as Dholera, also appoints the GIDB as the apex authority for SIRs in the state.6 Therefore, while the initial policy documents for the DMIC state the importance of integrating industrial growth with urbanization, much of the planning of DMICrelated projects is being managed by the institutions responsible for industrial planning and governance, with little coordination between either the state ministries of urban development or urban local bodies. An important caveat is in order: there is some level of inter-state variation in this, with the Rajasthan state government considering the possibility of setting up an institutional mechanism Dholera is a greenfield industrial development site in Gujarat that has been planned for the first phase of the DMIC.
that will bring urban development to the forefront. The stated intention of linking industrialization to urbanization takes on a slightly different tone with the new government, as the agenda for urban development is now focused on the development of ‘smart cities’. In the context of the DMIC in Gujarat, this is taken to mean the greenfield site of Dholera, which has now been declared a smart city. The focus on greenfield locations bypasses the problems of coordinating between industrial plans and existing urban locations, but such projects are difficult to execute.
3.4. Challenges with governance and planning India has a three-tiered government system: the national or the federal-level government, followed by the state or regional-level government and finally city or municipal-level government. However, the third tier of government has been relatively weak in the early decades of newly independent India. Acknowledging this issue, the Parliament passed the 73rd and 74th amendments to the Indian constitution in 1992 that required decentralisation of government and decisionmaking. These constitutional amendments enable both local rural and urban governments to take decisions with regard to their jurisdictions. However, there are few incentives offered to state governments to implement the reforms, or indeed few negative repercussions of not implementing them (Sami, 2012). The Government of India attempted to link the implementation of urban reform with financial incentives through the JNNURM programme, however this too did not succeed.
In spite of legislation that requires decentralisation of governmental authority at the local level, state governments, and the parastatal bodies that they appoint, continue to control most of the decision-making processes with little or no input from municipal governments (Baud and de Wit, 2008). The governmental reaction to a rapidly weakening municipal management structure was to attempt to find substitutes for municipal institutions, often in the form of development authorities (Buch, 1987). These developmental authorities are parastatal statutory institutions
responsible for the developmental aspects of planning in urban settlements, while maintenance and service provision is left to the elected municipal councils.
In an extension of this trend, the newer forms of economic settlements like SEZs, industrial townships, and large SIRs along industrial corridors are emerging as spaces of exception (Ong, 2006) where the usual norms and legislations that apply in most other urban settlements are relaxed to a certain degree. These spaces are being planned and governed by specially created institutions like development authorities established under Article 243Q of the 74th CAA, which provides an exception for the establishment of locally elected bodies for areas designated as industrial townships. While there is always the possibility that these new urban-like economic spaces may one day have an elected government, it is important to ensure that their residents have access to and are governed by the same set of policies and laws as other urban settlements. It is also important to recognize that the transition to elected local government becomes difficult, as development authorities create their own domains of power and are unwilling to cede these to newer institutions, as amply witnessed in the case of Bangalore (Sami, 2013).
Another area of concern is the setting up of new institutions for managing projects, bypassing the current institutional structure. While this might be expedient in the short run and enable state government to push through new forms of financing or partnering with the private sector, however, in the long run it can lead to fragmentation and weakening of institutions. Our research also shows that nonstate actors like consultants are now formally part of the planning process and are playing an increasingly important role in facilitating coordination between various levels of government, and between different agencies.
4. Assumptions, feasibility, and adaptability The establishment of settlements and zones to promote industry-led growth and decongest cities is based on certain assumptions regarding the feasibility of these types of policies and their projected outcomes and economic goals, which include
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export-oriented industrialisation and employment generation. It is important to critically analyse these trends since DMIC will act as a precedent to the other industrial corridors which are being planned across the country like the proposed Amritsar Kolkata Industrial Corridor. We discuss these below.
4.1. Export Oriented Industrialisation The DMIC’s focus is explicitly on manufacturing, though the infrastructure that will develop as part of it is expected to have spillover effects for other sectors like services as well. With the globalisation of manufacturing, studies suggest that it is necessary for emerging economies to adapt to the export oriented manufacturing strategy to make inroads into global value chains and to increase productivity (The Economist, 2015). India’s strategy to improve productivity in manufacturing seems to be influenced by the East Asian model of export led industrialisation. The East Asian model focused on bringing in foreign direct investment through the establishment of spaces like SEZs which offer tax subsidies and other incentives to manufacturers (Anand et al., 2015) along with, inter alia, developing export friendly exchange rate regimes.
In India, the SEZ policy was developed to encourage investment from the private sector, by providing incentives to private developers to establish industrial enclaves. This policy however, was found to be inadequate given the high up-front costs of acquiring land, and building industrial and transport infrastructure. The corridor policy along with the establishment of SIRs, influenced by Japan’s industrial corridors appears to have evolved from this model. In the corridor model, the state assumes a more prominent role in providing transportation infrastructure, and the assumption is that increased transport connectivity, augmented by industrial cities and SIRs, will help boost exports by reducing the delays currently faced by the export sector in the country.
There are a few pressing issues with this model of industrial growth, one being the feasibility of the export oriented strategy of the government and its
applicability to the current Indian and global economic context. There is growing evidence to support the fact that manufacturing shares are declining in employment as well as output in many developing countries including India (Rodrik, 2015b; Felipe et al., 2014). There has been a trend of premature deindustrialisation in developing countries where there is a lessening amount of specialisation in manufacturing, increasing automation and lesser amounts of labour allocated (Rodrik, 2015b). Another trend that has been observed is increased capital flows to smaller manufacturing economies like Bangladesh and Vietnam, over emerging countries like India, given their competitive advantages like lower labour costs (Rodrik, 2015a). Also, while growth rates of East Asian manufacturing, especially China, have fallen marginally, they still produce a large proportion of the world’s goods and their share is not expected to fall in the near future (The Economist, 2015).
Keeping these trends in mind, export led growth might not work out as well for developing countries now as it did for the South East Asian nations in the 1970s or for China since the late 90s because of slowing global demand. However, manufacturing for domestic demand holds promise, though the strategies that would need to be followed for this are very different and would involve lowering of internal barriers (Rajan, 2014). SEZs in India have had a poor performance over the last decade in facilitating industrialisation (See (Anand et al., 2014a) for a more detailed critique of the SEZ model). 63.5% of the SEZs that were set up were in the IT-ITeS sector, 9.5% in the existing export sectors leaving only 27% of the SEZs to promote new export sectors (Mukhopadhyay and Pradhan, 2009b). In Gujarat itself, the SEZ model has not seen much success. In 2009almost 80% of Gujarat’s SEZ exports came from a single SEZ (Mukhopadhyay et al., 2014). SEZs were a failure in Rajasthan as well with the allocated land being denotified and returned to the original land owners, as we found out through interviews. The failure of SEZs in both states, Gujarat and Rajasthan, and in other parts of the country acts as a warning to the possible fate of the proposed investment regions. To some extent, the provision of
transport and other supporting infrastructure might facilitate industrialization in a way that the SEZ policy was unable to do, however, a greater focus.
4.2. Implications for employment generation The second issue is about the mix of industries being promoted by this set of policies. The rationale behind an industrial policy of this kind is to increase productivity of the manufacturing sector by inviting medium and large industries which have higher levels of productivity as compared to micro and small firms (Bloom et al., 2014). However, large firms in India employ very low numbers of people, with 84 per cent the workforce in the industrial sector being concentrated in enterprises with less than 50 workers (Hasan and Jandoc, 2010). Currently, MSMEs make up most of the industries in the country, and also in the Jodhpur-Pali region in Rajasthan.
As mentioned earlier, state governments aspire to invite high value, capital intensive manufacturing firms to set up shop in the SIRs along with other industries, in order to boost productivity. Further research is required to understand the implications of this strategy for the already existing industries in these areas which are dominated by MSMEs (especially in the case of Jodhpur-Pali-Marwar), for employment and for the traditional economies of the regions.
A key issue of interest will be the effect of the corridor on these industries and on those employed in the MSMEs. In Rajasthan, the Jodhpur-Pali-Marwar (JPM) node has a large number of micro, small and medium enterprises which are the backbone of the region’s economy and the main source of industrial employment. On one hand, the corridor could help increase synergies between the existing and new industries and increase the dynamism of the region.
Proximity to transportation networks could allow smaller manufacturing hubs to reach out to new and bigger export markets more efficiently and allow them access to new resource networks, as in the case of the Jodhpur-Pali-Marwar node.
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